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AMD chips away at Intel

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Semiconductor manufacturer Advanced Micro Devices last month filed an antitrust lawsuit against Intel Corp., the dominant company in the microprocessor sector.

AMD’s legal maneuver is, of course, one way to fight for market share. The company has also employed more conventional methods.

A case in point is AMD’s b-to-b marketing strategy for its AMD64 technology and direct connect architecture, which are showcased in its Opteron and Athlon chip families.

The results of AMD’s highly successful marketing strategies for these microprocessors both support and undercut the company’s charges that Intel is a monopolist unfairly restraining trade.

In the personal computer and other enterprise-oriented segments of the computer chip market, AMD has long labored in Intel’s shadow. In 2004, AMD generated $5.0 billion in revenue to Intel’s $34.2 billion.

For years, AMD adopted a "me-too" strategy-both in chip design and marketing message-in competing against Intel in the enterprise sector. "If I could sum up our [previous] value proposition, it would be, `We’re just like the other guy, only cheaper,’ " said Bruce Shaw, AMD’s director-global commercial marketing organization.

Martin Reynolds, a Gartner analyst, said AMD began to change its strategy with the 1996 acquisition of NexGen, which supplied the talent for AMD to develop original chip designs to compete with Intel.

Shaw said he traces the key date to 1999, when AMD began the design process for what would become the Opteron chip.

Rather than emulate Intel’s chip designs in the enterprise sector, AMD practiced marketing with a capital "M" and opted to design the Opteron chip from scratch based upon what it believed the market would need four to five years down the road.

AMD targeted the workstation and server market, where Intel had an iron grip in both market share and brand power. AMD believed that databases and other applications that rely heavily on memory would become increasingly important, an assumption that proved to be true.

But some observers thought at the time that AMD’s move was suicidal. "In hindsight, it’s easy to see that it was a good move, but it wasn’t at the time," said Rob Enderle, principal analyst with the Enderle Group.

With Opteron, introduced in April 2003, AMD gave the market a chip that delivered traditional speed measured by gigahertz, but also speed characterized by the capability of accessing memory faster than other microprocessors. This made it a natural for many applications in servers-especially in server clusters-and workstations.

"They knew they had a world-beater here," Shaw said.

Last April, AMD fired off another salvo in the chip battle, releasing its dual-core Opteron. "The announcement puts AMD ahead of Intel in the server space," wrote Richard Fichera, a Forrester Research analyst. "Users won’t see servers with dual-core [Intel] Itanium processors until later this year or early 2006, and Intel’s bread-and-butter Xeon processors probably won’t appear in dual-core servers until late 2005 or early 2006."

An Intel spokesman downplayed AMD’s moves, saying that while Opteron- and Xeon-based servers may account for more units sold, the big dollars in the server space are in the mainframe arena, where the Intel Itanium is strong.

With the launch of Opteron in 2003, even with a microprocessor that performed better in many applications on workstations and servers, AMD faced a skeptical audience and a marketing budget dwarfed by Intel’s capacity to spend. In 2003, AMD spent $14.5 million, none of it on television; Intel spent $113.0 million, including $46.6 million on network TV, according to TNS Media Intelligence. In 2004, the numbers were similar, with Intel outspending AMD almost eight times over.

So AMD attacked Intel with partnerships, joining with Sun Microsystems and IBM Corp. In the marketing communications arena, it employed inexpensive, targeted methods.

Among its most effective weapons were white papers, case studies and other forms of public relations. AMD flooded the tech media with opportunities to examine the Opteron in action. It also engaged in guerrilla marketing tactics, such as hiring a skywriter to celebrate AMD above San Francisco’s Moscone Center, where Intel was holding its developer forum.

"Our share of discussion now is consistently 50%," Shaw said.

AMD did run advertising, but again the goal was targeted spending. It focused most of its spending on b-to-b magazines, local radio and the Internet.

The key goal of the marketing effort was to get the sales staff in front of customers where they could demonstrate the product, which, in certain applications, could double and even triple the speed of competitive chips, according to AMD.

Luminetik, a small animation studio, viewed a demo and found the AMD architecture could "render the frames 14 times faster," said Akiko Ashley, a co-founder of the studio. "We did it twice," she said. "We were really fascinated by this."

After testing the demo, Luminetik switched to servers powered by AMD. "It has higher speed, lower electricity consumption and less crashes," Ashley said.

The results of this marketing push? Gartner showed that in the first quarter, AMD’s share of the four-way server market was 22.5%, up 325% from the same period in 2004.

Ultimately, the results appear to indicate that Intel is vulnerable and possesses little monopolistic power in servers and workstations. However, an AMD spokesman said, "While it is true that Opteron has made some inroads, we firmly believe that in an environment of fair and open competition where OEMs are free to choose processors without fear of intimidation or financial retribution, Opteron would be more successful in the marketplace."

The fact that AMD attacked Intel in servers and workstations and not PCs underscores Intel’s power in that critical market. Intel controls about 80% of the PC market, has an exclusive customer in Dell Inc. and wields great power in that particular sector with its "Intel Inside" marketing program.

That partially explains why AMD is battling Intel, which vigorously disputes that it is engaging in unfair trade practices, in the PC market primarily in the courtroom.